VARBusiness 500: Back to Business
The overall result is that this year's VARBusiness 500, our 14th ranking of the industry's largest solution providers, is very much different than it was only a year ago.
The good news is that, collectively, the 2002 VARBusiness 500 companies generated more than $320 billion in 2001 revenue. While the figure is an increase of more than $16 billion from the previous year, the not-so-good news is that the rate of growth is markedly slower,from 12.1 percent in 2000 to 5.3 percent in 2001,giving evidence to the realities of a harsh economy. Not surprisingly, the solution providers that reacted quickly and adapted their business models to reflect the tougher market conditions fared the best.
Perhaps the biggest indicator of the financial difficulties is the entry point to the 2002 VARBusiness 500. Last year, the bar shot all the way up to $35.2 million, a huge increase from the previous year's mark of $22.5 million. Looking back, it's clear that backlogged e-business projects gave many companies a strong start in 2000, providing them with the buffer they needed to get through the rest of the year intact. But 2001 afforded them no such leeway. The year started amid the downturn and only got worse, with customer IT spending continuing to sink as the economy worsened. As a result, the 2002 cutoff point sank way back down to $22.3 million, back in line with the pre-dot-com explosion mark.
To no one's surprise, IBM Global Services VB1 once again took top honors, with $35 billion in total revenue for 2001. But even for this IT services giant, all was not perfect. The company's year-over-year growth (5.4 percent) was outpaced by several of its closest peers, including No. 3 player Accenture, which recorded a huge 29 percent revenue jump to $13.3 billion last year. Second-place EDS also lapped Big Blue in terms of growth, with a 12 percent increase to $21.5 billion for 2001. The VARBusiness 500 leader's difficulties in year-over-year growth, not to mention recent layoffs announced by the company, only add fuel to the debate over whether the organization is at, or near, the limits of how big it can actually get.
The Billion Dollar Club (see page 126) saw its ranks swell this year, as we opened the door to a number of large government solution providers, including Lockheed Martin Information Technology VB4, Raytheon Technical Services VB36, Northrop Grumman IT VB18 and General Dynamics Information Systems and Technology Group VB25. As a result, 60 companies made it into the exclusive club this year, up from 52 only a year ago.
And as we predicted early last year, the combination of a tumultuous economy and basement-level valuations for publicly held companies led to a rash of mergers and consolidation activity that continues even today. In the past year alone, VARBusiness 500 companies including Comark, Comdisco, DMR Consulting, Emerald Solutions, Entex IT Services, iXL and Proxicom were scooped up by larger companies looking to expand their services capabilities. More recently, companies including Corporate Software, Plural, Software Spectrum and Viant turned the 2002 VARBusiness 500 into their swan songs, with plans to be acquired before year's end.
The largest VARBusiness 500 companies weren't immune to merger fever, either. The recent merger between HP and Compaq takes two top 10 companies,Compaq Global Services VB6 and HP Consulting VB8, and combines them into a new services giant. Measured together, the new entity would have brought in around $15 billion in revenue last year, putting it in third place, behind EDS. (For the record, since the ranking is based on 2001 performance, we left the two companies listed as separate entities because they completed the year as individual companies. That will change next year, of course.)
Unfortunately, bankruptcies and other financial difficulties forced us to say goodbye to former VARBusiness 500 companies, including Breakaway Solutions, DIS Research, Gobosh, Infinite Technology Group, Luminant Worldwide and Zefer. But we also saw the arrival of dozens of new companies to the 2002 listing, from smaller players, such as Holcomb Enterprises VB497, rs-unix.com VB481 and TruSecure VB466, whose revenue growth in 2001 won them spots on the ranking, to more controversial choices like direct-selling outfits CDW VB21 and Insight Enterprises VB38, whose influence with vendors like Sun, Microsoft and HP makes them impossible to ignore.
Last year also witnessed the arrival of the European giants into the North American IT solutions market. Dimension Data Holdings VB108, which has traditionally kept a low profile in the U.S. market, made a big move in 2001 with the acquisition of Proxicom and a number of other regional solution providers. The result was more than $400 million in 2001 revenue and a spot near the top of this year's ranking. And for the North American unit of Cap Gemini Ernst and Young VB28, formed in 2000 after Cap Gemini purchased the consulting division of Ernst and Young LLP, 2001 was clearly a breakout year, with revenue up by close to 45 percent, to $2.6 billion.
Whatever happens during the remainder of the year, one thing is clear: The IT solutions industry is in a state of flux, beyond anything we have seen in recent history. And the companies on the pages that follow are the ones that managed to make their marks through the turbulence. In short, they are the members of the 2002 VARBusiness 500. Let me know what you think about their accomplishments at [email protected].